Trouble brewing for Google Wallet

I believe in Google's capability to actually pull off mobile payments. I believe Google does get it. With all its initial failings, its misplaced loyalty towards NFC and the existing payment rails, I believe it truly have a shot at fixing payments and closing the loop in local commerce.

Let's look at what is going right for Google: Android is fast becoming the dominant ecosystem on mobile, with over 200 million devices so far and 550,000 activations happening every day. It has made Android a force of nature that is now slowly eating away at Apple's market share. It has a mobile wallet initiative out front at least more than a year before the closest competitor – Isis. It has had some notable successes with retailers (e.g., Gap) and has partnered with New Jersey Transit for payments. Formidable partnerships with Citi, FirstData and MasterCard should be all that is needed to prod more issuers in to joining Google Wallet.

Even with all this momentum, Google Wallet does not seem to be having a good day so far.

Despite Visa's significant call for EMV in the U.S. by way of threats to shift fraud liabilities to processors (and from there to merchants), balanced equally by the carrot of PCI audit compliance avoidance, NFC still faces considerable challenges to adoption. Apple chose not to include NFC in the iPhone 4S knowing fully that to do so without first creating a compelling offline commerce solution (the strains of which were heard in its recently revamped Retail App enabling easy payments in stores) would be advantageous to Google or others. Rumors abound that the Isis carriers are discouraging Google Wallet from being included on the Android phones provisioned on their networks, which has far reaching implications for both Google and Android. Meanwhile, Amazon has the clout to both build a payments presence and roll it out as part of its forked Android flavor Fire. But more importantly, Google Wallet is lacking what it needs most to make an impact: issuers.

Issuing banks are not exactly lining up on the streets to sign up with Google Wallet. In fact, news broke recently that indicated that Isis landed three much coveted issuers including JP Morgan Chase, US Bank and Capital One. It seems that banks, genuinely fearing disintermediation by Google, are more inclined to pay (if required) a rental fee and share the interchange fees (again, if required) with Isis rather than inviting Google to the party.

Yet another complaint from the issuers seems to be that the Google Wallet solution is oriented primarily around Google, and that there is very little room (and branding) in there for issuers other than providing the rails and supporting infrastructure. Issuers see this as a losing proposition for them rather than a winning one. They fear being marginalized by Google and losing customer mindshare to Google once it is able to create a compelling wallet experience by weaving together loyalty, rewards and payments at the point-of-sale. Google (and Apple and Square and Dwolla and Paypal and BankSimple and Movenbank and many others) are the barbarians at the gate, clamoring for their spoils, their hoarded treasure, a threat to the oligarchy asleep, cloistered behind the tall gates.

So what should Google do? Should they curry favor with those who are nonchalant or disenchanted? Absolutely not. Let Google be Google. Let that be the rallying cry.

And what about banks? Are they justified in their lack of trust in Google and others? Or are their newly formed allegiances with Isis grounded in the realization that the carriers hold far more power than Google? It also has to be, that as the one who enrolls customers, carriers are being recognized by banks as the ones who controls the phone and possibly the relationship with the customer, maybe more than Google. With over 200 million phones combined served by the Isis carriers, it can offer the scale that is necessary for mobile payments to succeed. Moreover, at least in U.S., carriers seem more inclined to partner with the issuers than go at it alone.

In the end, banks would be better served if they understood that disintermediation will occur with or without Google. Isis, Google Wallet, Square, Paypal, Bank Simple, or the 70 other mobile wallet initiatives out there, will eventually offer their customers a value proposition that far exceeds anything else presently in the banks' quiver of arrows. And that, in the end, is inevitable. The only question is whether they have the fortitude to ask themselves as to what the others may have in their quivers (no more archery analogies!) that will make banks irrelevant to their customers in 2, 3, or 5 years, and act swiftly on that premise so their competitors do not get there first.

Or they could choose to be Bank Of America and obsess over $5, customer relationships be damned.

Note: Google has indicated that it will support credit unions on its Wallet in future iterations. But at the very least it needs to show some love towards small to mid-sized banks. Currently, it has shunned this promising sector and it might just be one more of Google's follies that it will come to regret.

Cherian Abraham /
Cherian is a Mobile Payments Advisor with Experian Global Consulting. He is also an advisor to ModoPayments. As a mobile payments veteran and founder of Drop Labs, Cherian has worked with leading banks, retailers, mobile platform providers and startups in this space. Opinions expressed here are strictly his own, not that of Experian. www